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00:00JOINING ME NOW IS MITCHELL GREEN. HOW DO YOU THINK VALUATIONS ARE HANGING RIGHT NOW? ARE THEY TOO HIGH AND WHAT ' S NEXT? GUEST: THANK YOU FOR HAVING ME. ARE WE TALKING PUBLIC OR PRIVATE COMPANY VALUATIONS? EMILY: BOTH. GUEST: ANYBODY WATCHING THE MARKETS HAS SEEN ESPECIALLY IN THE SOFTWARE INTERNET WORLD THE PUBLIC VALUATIONS HAVE COME DOWN FAIRLY DRAMATICALLY. YOU WOULDN ' T KNOW IT IN THE INDICES GIVEN HOW MUCH IS WEIGHTED TOWARD LARGE-CAP COMPANIES LIKE APPLE AND MICROSOFT AND FACEBOOK AND GOOGLE. UNDERNEATH THOSE COMPANIES LIKE SNOWFLAKE OR TOAST, THESE COMPANIES HAVE COME DOWN HUGELY DRAMATICALLY. PUBLIC COMPANIES TEND TO LEAD PRIVATE COMPANY VALUATIONS AND WE ARE STARTING TO SEE PRIVATE COMPANY VALUATIONS DECLINE. YOU HAVE A LOT OF CROSSOVER HEDGE FUNDS THAT HAVE ENTERED THE SPACE OVER THE LAST FIVE YEARS AND WE ' RE LOOKING AT LARGE DEALS RIGHT NOW. IT SIX MONTHS AGO, THEY WOULD HAVE BEEN SWARMED. BY CROSSOVER PUBLIC INVESTORS. DEPRESSED VALUATIONS AND LESS COMPETITION SHOULD BE A GOOD TIME TO DEPLOY MONEY. EMILY: HOW DO YOU PLAN TO PUT THIS NEW $1.95 BILLION TO WORK? GUEST: THE SAME WAY WE HAVE BEEN FOR MANY YEARS. WE DEPLOYED OUR LAST FUND IN LIKE 15 MONTHS. WE WANT THIS FUND TO TAKE 2.5 YEARS TO THREE YEARS TO INVEST. CONTINUING TO DO WHAT WE DO. WE ARE PRIMARILY WESTERN EUROPEAN NORTH AMERICAN INVESTORS. WE HAVE DONE SOME STUFF IN ASIA. PRIMARILY, U.S. AND WESTERN EUROPEAN AND ISRAELI BASED COMPANIES. EMILY: WHEN YOU LOOK AT VALUATIONS, ARE YOU CHANGING YOUR OWN BAR IN TERMS OF WHAT IS REASONABLE? DO YOU THINK MORE BROADLY WE ARE GOING TO SEE A LOT OF AIR GET LET OUT OF THE BALLOON? GUEST: SINCE -- OUR BIGGEST MISTAKE TO BE CLEAR OVER THE LAST FIVE TO 10 YEARS WAS NOT PREDICTING MULTIPLE EXPANSIONS. HAD WE, WE WOULD HAVE MADE BILLIONS OF DOLLARS MORE THAN WE DID. THE WAY WE MAKE INVESTMENTS IS WE MAKE MODELS. THEN WE SLAP A REASONABLE EARNINGS AND REVENUE MULTIPLE ON IT AND DISCOUNT BACK. THERE WERE A BUNCH OF DEALS OVER THE LAST, A BUNCH OF DEALS GOT DONE IN 2021 THAT WE COULD NOT FIGURE OUT HOW PEOPLE WORK UNDERWRITING THESE VALUATIONS. WHEN WE STUCK IN OUR MULTIPLES THAT WITH OUR REASONABLE, WE COULDN ' T GET THERE. WE USE THE HISTORICAL AVERAGE MULTIPLE AND WE WILL CONTINUE TO DO THAT. IN FUND FIVE, WE HAD ONLY DONE ONE OR TWO DEALS IN THE BAY AREA. OTHER DEALS IN RANDOM PLACES AROUND THE WORLD. IN FUND SIX, YOU WILL CS DO MORE STUFF ON THE COAST BECAUSE I THINK VALUATIONS ARE GETTING TO BE MORE REASONABLE. EMILY: FAST JUST CLOSED SHOP YESTERDAY SAYING THEY RAN OUT OF MONEY. ARE WE GOING TO SEE THIS HAPPEN MORE OFTEN? GUEST: I ' M SURE YOU WILL. WE HAVE THIS ONE CRITERIA THAT IS SUPER IMPORTANT US CALLED CAPITAL EFFICIENCY. IT IS LIKE OUR VERSION OF RETURN ON EQUITY. ARE YOUR REVENUES TODAY, ARE YOUR RECURRING REVENUES OR ANNUAL RECURRING REVENUE GREATER OR EQUAL TO THE AMOUNT OF MONEY YOU BURNED SINCE DAY ONE OF BUSINESS? MAY BE RAISED A BUNCH OF MONEY, BUT IT SITTING IN THE BANK DON ' T BLAME THE ENTREPRENEUR. THE WORLD IS LITTERED WITH $30 MILLION REVENUE COMPANIES THAT HAVE BURNED $100 MILLION TO GET THERE. WHAT WE WANT TO FIND HIS COMPANIES THAT ARE $30 MILLION IN REVENUES THAT HAVE BURNED $10 MILLION TO GET THERE. THOSE ARE COMPANIES THAT YOU KNOW ARE JUST NOT GOING TO FALL OFF A CLIFF. YOU CAN GROW FAST AND NOT BURN MUCH MONEY, YOU HAVE A GOOD BUSINESS. IN EVERY DEAL THAT WE INVEST IN, WE RATE IT IS IT CAPITAL EFFICIENT OR NOT? THE VAST MAJORITY OF THE COMPANIES WE INVEST IN OUR. -- ARE. EMILY: WHAT ARE YOUR THOUGHTS ON THE CRYPTO INDUSTRY? GUEST: IT ' S A GIANT BUBBLE. WE HAVE LOOKED AT SOME OF THE STUFF AND CRYPTO. MORE THE PICKS AND SHOVELS BUSINESSES. EMILY: WHERE DO YOU SEE THE GIANT BUBBLE? GUEST: WE THINK THE RIGHT RATE IS $60,000 OR $500. WHEN I HAVE LOTS OF FRIENDS WHO TELL ME THEY KNOW NOTHING ABOUT INVESTING AND I SHOULD INVEST IN CRYPTO, THAT ' S A BUBBLE TO MEET. -- THAT ' S A BUBBLE TO ME. SOMEONE TOLD ME EVERY FRAUDSTER IN THE WORLD IS IN CRYPTO. IF YOU BELIEVE CRYPTO IS THE NEXT INTERNET, THEN YOU MIGHT SEE A DRAWDOWN OF 90% OR 80%, BUT THIS STUFF IS REAL. I THINK A LOT OF IT IS OVERHYPED AND IS NOT JUSTIFIED AT ALL IN FUNDAMENTAL INVESTING. I THINK IT ' S HERE TO STAY. ONE INTERESTING THING IS IT ' S REALLY VOLATILE. WHEN I SAW THAT TESLA WAS ENABLING YOU TO PAY FOR A TESLA IN BITCOIN, I THOUGHT THAT WAS SUPER COOL. THE PROBLEM IS, THE REASON THEY GOT RID OF IT AND YOU HAVEN ' T SEEN AMAZON AND OTHER RETAILERS ACCEPT IT IS THE CURRENCY IS TO VOLATILE. THERE HAS BEEN SOMETHING LIKE 10 DAYS WHERE BITCOIN HAS MOVED 10% IN ONE DAY. THE BIGGEST U.S.

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Lead Edge Capital's $1.95 Billion for Growth-Equity Bets

Lead Edge Capital Founding Partner Mitchell Green joins Emily Chang for an exclusive interview on raising $1.95 billion for its largest fund to date, to make bets on software, internet, consumer, and tech-enabled service companies. (Source: Bloomberg)

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